Research shows WA is severely affected by lack of housing affordability

A worrying percentage of Western Australians – particularly lower income earners – are being severely affected by a lack of housing affordability and forced to live a considerable distance from their preferred locations and places of work.

The Bankwest Curtin Economics Centre will on Thursday release a major report into the Real Costs Of Housing In Western Australia, analysing both the economic and social impacts of housing affordability in the State.

In addition to incorporating traditional measures of affordability, such as median mortgage and rental payments as a proportion of household disposable income, the report uses microeconomic measures to focus on housing stress for different groups in the WA population – including lower income earners, lone parent families, and older renters.

The report includes results from the new Bankwest Curtin Economic Centre Housing Affordability Survey, an innovative study of the personal housing stories of West Australians.

Professor Alan Duncan, Director of the Bankwest Curtin Economics Centre, said the additional scope enabled the report to paint a truer picture of the issue of housing affordability in WA.

“One of the key limitations with existing measures of housing affordability is that they don’t adequately represent circumstances faced by the many families who struggle to gain entry into the housing market,” Professor Duncan said.

“For instance, nearly one in four lone parent families in the lowest two income quintiles pay more than half of their income towards mortgage costs – three times the rate of any other household group.”

“While mortgage cost burdens in WA caught and overtook the rest of Australia from 2003-04 to 2011-12, data showed that WA’s rental cost burdens remained behind the rest of the country.”

“A more detailed analysis reveals a different scenario. Not only are many Western Australians suffering from mortgage stress but there is a concerning level of rental stress as well.”

“And it’s lone parent families and elderly renters – the very people the rental system is supposed to help – who are doing it toughest in terms of a lack of affordability.”

Professor Duncan explained the report took a common indicator of housing affordability – the “price to income ratio” – and adapted it by comparing typical sale prices of established houses in sub-regions of Perth and WA with the incomes of households in those particular areas.

The indicator was further refined to compare the lowest 25 per cent of house prices with the lowest quarter of income earners in the area.

“Some of the results were unsurprising – it was no shock that the Western Suburbs had the highest median price to income ratio and therefore was the least affordable area by this measure,” Professor Duncan said.

“But for the lower income earners, a demographic that interests us greatly, there were some concerning results.

“In the sub-market of Joondalup South, the median price to median income ratio is 6.5. But the ratio of lower quartile priced houses to lower quartile income is 10.9, meaning an additional 4.5 years of income is needed to buy a house in Joondalup South for its lower income earners as opposed to its median income earners.

“The figures for multi-residential units are interesting as well. While some areas, such as Fremantle, remain unaffordable for both its median and lower income earners, the Western Suburb ranks only 10th in median price-income ratio and 22nd for the lower quartiles.”

But it was rental market analysis that revealed the biggest issues for lower income earners, Professor Duncan said.

“The rental market exists, in part, to provide a secure and affordable supply of housing to the segment of the population for which ownership is out of reach,” Professor Duncan said.

“But our research shows it is failing in this regard. None of the 25 sub-markets in Perth we analysed had lower quartile rent-to-income ratios of less than 0.42.”

“And it was a similar case for units. Excluding, Mundaring and Serpentine-Jarrahdale, where there was insufficient data, the lowest quartile rent-to-income ratio was 0.36.”

“Given the general definition of housing stress involves households in the lowest 40 per cent of income earners devoting more than 30 per cent of income to housing costs, these figures are worrying.”

Professor Duncan said demographic breakdowns revealed an even more disturbing scenario.

“Our report demonstrates a total of 42 per cent of lone parent families are spending more than 30 per cent of income on rent and 13 per cent of them are spending more than 50 per cent,” Professor Duncan said.

“Another concerning demographic is renters between the ages of 55 and 64 – 38 per cent of whom are spending more than 30 per cent of income on rent and 22 per cent of whom are outlaying more than 50 per cent.”

“Of households headed by women, 39 per cent are spending more than 30 per cent of income on rent.”

“What these figures demonstrate is a fundamental failure of the rental system to provide affordable housing for those that need it the most.”

The results of the Bankwest Curtin Economics Centre Housing Affordability Survey further highlighted the impact of housing stress on WA.

The new survey was conducted on behalf of the Bankwest Curtin Economics Centre by a team led by Associate Professor Steven Rowley, Head of the Department of Property Studies at Curtin University.

As part of the survey, a total of 1458 people provided information on their experiences of housing affordability and the impact of housing-related costs on other aspects of their lives.

The survey had 57 per cent of respondents aged between 25 and 44, a range in which households are traditionally considered to make key housing decisions.

“The picture for many renters is not pretty,” Associate Professor Rowley said.

“Of the respondents who rented from a public or community housing provider, 62 per cent considered themselves to be poor or very poor.”

“And of those who rented in the private sector, 42 per cent put themselves in the poor or very poor category.”

“On the other hand, only 12 per cent of owners with a mortgage identified as being poor or very poor.”

“Among private renters, 46 per cent reported having trouble meeting housing costs at least a few months a year, compared to only 28 per cent of owners with mortgages.”

Professor Rowley said affordability – or a lack thereof – clearly appeared to be having an impact on where people lived.

“A total of 37 per cent of our respondents – renters and buyers – lived more than 10 kilometres from their first choice locations,” Associate Professor Rowley said.

“Breaking the data down into regions of Perth is even more instructive. In the South West, more than 60 per cent of people lived more than 10 kilometres from their first choice location, in the North East and South East the figure was above 50 per cent and in the North West it was 49 per cent.”

“Only one per cent of respondents told us they would like to live 30 minutes’ drive from their place of work but more than 20 per cent actually found themselves in that situation.”

Professor Duncan said the rental system was likely to be placed under even more pressure in the near future.

“Another demographic identified by the survey was the people living with their parents or in group households while saving for house deposits,” Professor Duncan said.

“Among those living with their parents, the average shortfall for a deposit was $29,000 and for those living in group households it was $26,300.”

“In order to make up that gap, an individual on a gross income of $70,000 would have to save 10 per cent of their net income for five years.”

“The natural assumption is that many of these people will enter or stay in the rental market for the foreseeable future.”

Other snapshots from the Real Costs of Housing In WA report

Comparing median mortgage costs to income, householders in Perth were spending the third highest share of their income on housing costs in 2011-12 across all capital cities in Australia. The remainder of the State ranked second in regional Australia in 2011-12 and saw the greatest percentage increase in housing cost share since 2003-04.

Renters in Perth paid a lower median percentage of their income in rental costs in 2011-12 than all other capital cities, bar the ACT and NT (which are grouped together due to small sample size). Renters in the remainder of the state paid the lowest median percentage of their incomes in rental costs in 2011-12 of all of Australia, this being driven principally by high incomes in regional WA.

Fremantle, comparing its median weekly income to rent, was the least affordable area in Perth in which to rent a house. It was also, comparing median price and income, the least affordable area of Perth in which to buy a unit and the second least affordable in which to buy a house.

On the other hand, while the Western Suburbs is among the most expensive areas to rent houses, when it comes to renting units, it is the most affordable area for its median income earner and the second most area for its lower income earner.

Serpentine-Jarrahdale was the most affordable area of Perth for its median income earner to buy an established house.

Armadale was the most affordable for its low income earners to buy established houses.

Kwinana was the most affordable area for both its median and lower income earners to buy units.

The least affordable country region in which to buy a house, comparing median income with median sales price was Mandurah, followed by Busselton. The most affordable was Kalgoorlie-Boulder, followed by Karratha and Port Hedland.

On the other hand, comparing median weekly income and rent, Port Hedland was the least affordable place to rent, ahead of Mandurah. Karratha ranked sixth and Kalgoorlie-Boulder was again the most affordable.

The percentage of lone parent with children households in WA spending more than 30 per cent of their income on mortgage costs jumped from 30 per cent in 2003-04 to 45 per cent in 2011-12. In regards to rent, the percentage went from 29 per cent to 42 per cent.

The percentage of lone person households spending more than 30 per cent of income on mortgage costs was 46 per cent in 2003-04 but 74 per cent in 2011-12.

The percentage of households headed by 55 to 64-year-olds spending more than 30 per cent of their income on rent increased from 12 per cent to 38 per cent between 2003-04 and 2011-12.

From the Housing Affordability Survey, 80 per cent of households were willing to sacrifice new clothes to meet housing costs. Other results: holidays (72 per cent), social activities (71 per cent), health and beauty products (66 per cent), home maintenance (30 per cent), health insurance (23 per cent), car insurance (14 per cent) and utility bills (three per cent).

From the survey, 12 per cent of households could not afford any maintenance on their homes. Other results: up to $2000 (20 per cent), $2000 to $5000 (23 per cent), $5,000 to $10,000 (17 per cent) and $10,000-plus (28 per cent).

Notes to editor:

The Bankwest Curtin Economics Centre is an independent economic and social research organisation located within Curtin Business School at Curtin University. The Centre was established in 2012 with support from Bankwest (a division of Commonwealth Bank of Australia) and Curtin University.

Further Information

Housing AffordabilityRebecca Cassells, Alan Duncan, Amity James, Kenneth Leong, Sanna Markkanen, Steven Rowley
The cost of housing in Western Australia has been a recurrent theme in discussions in West Australian homes, businesses and the policy environment. A long held perception is that housing affordability in the state has spiralled out of control, with... Read article30 April 2014Focus on WARead More

The Bankwest Curtin Economics Centre is an independent economic and social research organisation located within the Curtin Business School at Curtin University.

The Bankwest Curtin Economics Centre team acknowledges the Wadjuk Nyungar people as the traditional owners of the land on which the Centre is situated.